Sensex gives Manmohan A 21-ton salute

MUMBAI: Those who seek to make money on the markets should know that a narrow understanding of economics is just not enough; they need to
appreciate the role of politics in the making and unmaking of financial fortunes.

If ever proof was needed, it came on Monday with a force never before witnessed in the history of markets anywhere in the world, as stocks, bonds and the rupee went nuclear on the back of a dramatic mandate for Manmohan Singh and the Congress.

For the first time ever, the Bombay Stock Exchange, which was founded in 1875, had to halt trading for the day when the 30-scrip sensex skyrocketed by 2,111 points, or 17.3%, in the space of a minute, give or take a few seconds — making investors Rs 3.6 lakh crore richer. In both absolute and percentage terms, it was a record-smashing performance — shading by almost 1,000 points the previous biggest single-day rise of 1,140 points on January 25, 2008. It was the same story on the NSE, except that the rise there was even sharper at 17.7%. It was almost as if the stock market was trying to reach the moon in the time sprinters take to cover a hundred metres.

The sensex, which after a precipitous fall from over 21,000 points in January 2008 to below 8000 in October 2008, had recouped 26% from the beginning of this year till election-eve, has overnight extended its gains to 48%, taking it from last to first among the BRIC (Brazil, Russia, India, China) countries, and poll-vaulting it into the best performing index in the world (barring Peru).

This paper, on the front page of its election special on Sunday, had anticipated markets would soar because, ‘‘with the Left decimated and the Congress no longer dependent on coercive allies, a stable government would be able to push reforms’’. Such reforms, we reported, would come in the form of PSU disinvestment, further liberalization in FDI policies, private entry in pension funds, and possibly labour reforms. Also, we’d said, there would likely be a renewed push for infrastructure. On Monday, this paper foresaw a ‘‘massive gap-up opening’’ and said ‘‘bulls are raring to take the sensex up by a circuit-hitting 10% within minutes of opening on Monday’’.

We also wrote, ‘‘In case of a 15% rise (over the last trading session of the previous quarter) there will be a two-hour market halt if that takes place before 1 pm. In case of a 20% rise, trading will be halted for the day.’’

That’s precisely what happened a little later in the day — except that the upper circuit filter was hit in seconds and not minutes as we’d predicted! In the space of a few eye-blinks, the market, which opened at 9.55am, climbed vertically by 1790 points from Friday’s closing of 12,173 pts. Trading was halted within seconds — holding the sensex down at 13,963 points between 9.56am and 11.55am. The moment trading resumed, the index, far from cooling off, jumped instantaneously by another 652 pts. It was almost unreal.

Source:http://timesofindia.indiatimes.com/India-Business/